Govt asked Banks not to pay commissions to Employees for Cross-Selling Products

In a letter to the chairman SBI, and MDs and CEOs of all PSBs, the department of financial services said that central vigilance commission has advised them to examine the consequences of Cross-Selling by bank’s own staff and to devise guidelines to guard against faulty policies followed by certain banks to Cross-Selling products of insurance companies and others, resulting in unethical acts by the cross selling officer to achieve targets.

“It is observed that commission on Cross-Selling business should not be paid to the employees of the bank as they are full time employees and are paid fixed salaries,” said a letter from the finance ministry to the bank chiefs.

“Commission on this business should be paid to the bank and should be its income.” SBI, the biggest bank, has seen income from fees grow 10.51% and cross selling income rise 78.33% during the last financial year. SBI crosssells products of SBI Life Insurance, SBI Mutual Fund, SBI General, SBI Cards, SSL and NPS. It had earned income of `1,631 crore in the last financial year. It embarked on the path of higher fee income inspired by Sandy Weill model of banking way back under OP Bhatt’s chairmanship.

“Bank unions have been complaining about cross selling of insurance and mutual fund products by employees and rather they should focus on lending and recovery of loans,” said source close to the development. Banks have, in the past, been accused of mis-selling insurance products. Bancassurance channel contributes close to 50% of sales for most bank-promoted insurance companies.

Private sector banks dominate the distribution of third-party products, particularly insurance. Life insurance distribution has constituted a major source of fees earned. “With this directive, public sector banks will be at a disadvantage in terms of fee income,” said an executive with a public sector promoted insurance company. “Private banks have better incentives for their employees and they will continue to grow their business.”

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